Uber's Kalanick Should Lose His Board Seat, for the Good of Tech

Investors have surrendered too much control to founders, and it's unhealthy.

A newly filed lawsuit shows how much animosity has grown between Uber investors and Travis Kalanick -- and it was already enough to force him out as CEO. Benchmark Capital, a major investor, filed its complaint yesterday in Delaware Chancery Court, seeking to get the company co-founder kicked off the board.

It's an ugly battle and hardly one-sided. Kalanick reportedly is trying to orchestrate a come-back in which he would again become CEO. By the way, as chief executive he presided over what may be the longest stretch of corporate culture disasters ever seen in high tech, and that's saying a lot.

Over the decades, venture capital firms have been a mixed blessing for high tech, enabling great successes but also distorting and warping the industry. However, in this case, a win for Benchmark would be good for all. The trend of founder as uncontested ruler has gone too far and it's time to return to some balance of power.

When Dan Primack at Axios broke the story of the suit yesterday, he noted that one paragraph seemed to encapsulate Benchmark's concerns:

Kalanick, the former CEO of Uber, to entrench himself on Uber's Board of Directors and increase his power over Uber for his own selfish ends. Kalanick's overarching objective is to pack Uber's Board with loyal allies in an effort to insulate his prior conduct from scrutiny and clear the path for his eventual return as CEO--all to the detriment of Uber's stockholders, employees, driver-partners, and customers.

Compare that paragraph with this one from Recode's Theodore Schleifer:

One of tech's most prestigious venture capital firms is publicly and legally pummeling the former CEO of its own portfolio company with 38 pages of gnarly allegations. Six years ago, Benchmark adored Kalanick enough to give him millions of dollars. Now, it despises him enough to initiate a lawsuit that is sure to inflame tensions at a company with a $70 billion valuation that is a cornerstone of Benchmark's financial future.

It all comes down to an unfortunate trend that occurred in high tech. The typical pattern for companies accepting funding once was the trade of equity and influence. Investors wanted a healthy say, if not actual control, of a company when they put in millions of dollars -- collectively billions in the case of Uber.

The imperial founder

About 20 years ago, when a lot of investment money was seeking the best of opportunities for high growth and potential value, founders of the hottest tech companies realized they had a negotiating advantage. They could offer equity and still demand complete control over the company to run as they saw fit. Investors bent their knees and pledged fealty to their economic lords.

I think Google was the first example, where the "triumvirate" of Sergey Brin, Larry Page, and Eric Schmidt used multiple stock classes to keep voting control even as investors lined up for a piece of the action. Facebook is similarly structured and Mark Zuckerberg could get away with it because, again, investors so badly wanted a piece of the pie.

If you want to be an autocrat, that's fine. Go do it on your own money. Build the business over time. But when you're playing with the cash of others, they should have a say when you're doing something that seems dumb. Uber is a perfect example. The company needs to grow up and Kalanick's history suggests that he's not the one who can accomplish it.

But, as Primack reported, Kalanick apparently tried to enlarge the board with personal choices to tighten his control. In fact, when he was out as CEO and, therefore, a board member, he used one of his appointments to put himself back on. Benchmark had agreed to Kalanick's demands for a larger board, but now claims that the long litany of screw-ups and fundamental cultural problems were material information hidden from them at the time. They also alleged Kalanick, as part of leaving as CEO, agreed to make the positions subject to approval by the entire board. In other words, they say he committed fraud.

Even if Benchmark is not successful, this will hopefully send a signal to founders that they cannot treat investors as a disposable resource, taking money and then freezing them out. The underlying assumptions by founders that they alone know what should be done and are never wrong are corrosive and need to end.